Special Topics

EMU Orders Rise in January but
Trends Point Lowerby Robert
Brusca March 26, 2008

It may not be resiliency as much as volatility as the rise in
January EMUorders still
shows growth rates steadily declining from 12 months to 6 months to 3
months.In the current
quarter despite the bump up in January orders are only rising at a 1.2%
annual rate over Q4. Still, other more ‘timely’ data tell a better
resiliency story.

Total domestic orders show the same steady deceleration in
orders as overall orders with the recent three-month order growth rate
at a -3.7$ saar. Foreign MFG orders do not show the clear slowdown of
overall orders, but that is a bit of nitpicking since the 6-month
growth rate is about the same as the 12-month pace and the recent
3-month growth rate is about half of those rates at 5.5%. The Euro Area
does seem to be slowing domestically and, despite the strength of the
euro, foreign growth is keeping the EMU stronger.

Germany and Italy show withering order trends. France is
consistent with a slowdown. Only the UK is different on a jump in
orders in January that has sent the three-month growth rate soaring.

On balance though, the ECB and EU Commission seem still very
worried about the level of the euro. But the German IFO index has risen
again in March and the new Belgian Bank index for March also has shown
growth for the second month running. This domestic resilience was not
expected.

Data and Policy Conundrums… The
orders data tell us that domestic orders are in a slowing pattern. The
strength has come from orders outside the EMU. Now some new measures
are showing that there may be some domestic resiliency in February and
March in Germany and Belgium. None of this will make the ECB ready to
reverse its course and cut rates anytime soon. It makes you wonder if
the euro really does have more upside, something I have been unwilling
to ponder up to now. Is
Europe swallowing its teeth to hide the euro’s damage to its economy?
Or is Europe really this resilient? If Europe is this resilient, the
ECB’s carping about inflation risk makes sense, but complaining about
‘euro strength and excessive FX volatility’ does not make sense. Which
is it?